rrrrr

1. Master Degree Project in Management
THE ART OF MAKING RATIONAL
INVESTMENT DECISIONS
‘The fall of theories and the rise of heroes?’
- A case study on how organizations structure and produce rational
investment decisions
Eric Bornhammar and Oliver Widal
Supervisor: Lars Walter
Master Degree Project
Graduate School

2. 1
The Art of Making Rational Investment Decisions
‘The fall of theories and the rise of heroes?’
Eric Bornhammar
Master of Science in Management, Graduate School. School of Business,
Economics and Law at Gothenburg University
Oliver Widal
Master of Science in Management, Graduate School. School of Business,
Economics and Law at Gothenburg University
Abstract
The purpose of this paper aims to explain the production of rationality for
organizations and present how managers engage in investment decisions, recognize
the underlying factors affecting the decision-making process, and eventually describe
how organizations engineer rationality in their investment processes. This paper
presents two different industries; manufacturing and investment, and draw upon
similarities and differences between them with the ambition to compare the definition
and the standardization of rationality in the firms’ investment activities. In order to
gain a deeper understanding of the complexities and ambiguities of investment
activities, as well as providing an additional dimension to the study, two advisory
firms have been interviewed. The study is qualitative in its nature and builds on the
concept of performativity, where the practical usage of an aspect of economic theory,
not only are used by investment actors, but also shapes investment practices
(MacKenzie, 2007). Previous studies on performativity related to decision-making
have presented a gap between how actors make sense of these economic assumptions,
and to what extent these assumptions are implemented into practice. Furthermore, this
study aims to provide new insights and understandings in how normative economic
theory becomes infused into investment activities and therefore asserts a practical
relevance for decision-making. Finally, this paper, inspire a further discussion on how
rationality can be efficiently and accurately produced in the investment process for
organizations operating on a globalized market characterized by digitalization, shorter
business-cycles and increased competition.
Key Words
Investments, Decision-Making, Performativity, Rationality, Technology, Consultants

3. 2
Introduction
In organizational and management research, there is a growing interest regarding how
managers behave and make sense of investment decisions (Sandahl & Sjogren, 2005).
Several research fields such as; psychology, strategy and finance have conducted
studies to increase our understanding of decision making related to investment
activities (Sandahl and Sjogren, 2005; Eisenhardt & Zbaracki, 1992; De Bondt &
Thaler, 1995; Simon 1979; Cabantous, Gond & Johnson-Cramer, 2010). Although
extensive research has been done in the field over the last 40 years, studies have
shown a gap between theory and business praxis related to investment decisions. The
ambiguities in understanding investment praxis mainly derives from the complexities
in trying to understand how theory and practice influence each other with respect to
decision making in the investment process. Previous studies concerning rational
decision-making might have a normative content and describe the underlying
assumptions on how an investment actor makes a decision to maximize utility
(Savage, 1954; Simon, 1957; von Neumann & Morgenstern, 1947). For example, one
of the main contributions from these scholars, were the concept of the ‘economic
man’, which reinforces the normative perspective in decision making (Elster, 1986).
In comparison, organizational theories revise decision-making by denouncing rational
choice theory and reject the economic models of rationality (Chia 1994; Laroche
1995; Langley et al. 1995).
Moreover, organizational scholars argue that normative economic theories related to
decision making become exceedingly theoretical and are therefore not applicable to
investment praxis, thus insufficient in describing the actual decision practice
(Eisenhardt & Zbaracki, 1992). Additionally, these scholars fail to explain the
circumstances of tools designed to produce rationality in the decision-making process,
as well as the attributes of the investment actor who makes sense of the final decision.
March (2006), states that rationality is not just a construct of social intelligence, it is
also a crafted product from organizational intelligence, thus producing rationality
demands a cautious and patient effort from well-trained professionals in relation to
actors, theory and material artefacts. In particular what is missing from the research is
an analysis of the social-technical conditions in decision making that enables the
construction of rational decisions within the organizational context (Cabantous, Gond
& Johnson-Cramer, 2010). This perspective allows researchers to analyze rational
decision-making as a social construction, where rational choice theory and a set of
tools and artefacts, embed the underlying core assumptions of decision making
(Cabantous & Gond 2011; Cabantous et al. 2008). This culminates in rationality as a
performative praxis, produced within the organization and more generally how
economic theory is translated in decision making, altogether making rationality, and
decision making, highly context dependent (Cabantous & Gond, 2011). In that sense,
rational decision-making can be described as a performative praxis - a set of
activities, where organizational actors together produce rational decisions and
therefore gives social reality to rational choice theory (Ibid).
In the theoretical model used in this paper, theory derives from normative decision
theory as described by (Keeney 1982; von Neumann & Morgenstern 1947; Myerson,
1991), and actors include the decision maker and others, both internal and external
actors (in this paper referred to as consultants), who in some way influence the final
investment decision (Langley, 1989). Moreover, non-human actors can be investment
tools, business intelligence software and other support systems. In theory, tools are

4. 3
designed to construct rationality and support actors to produce rationality in their
investment processes (Clemen & Reilly, 2001; Hodgkinson et al. 1999). In a practical
perspective, both researchers and practitioners, emphasize on the importance of
techniques and tools in strategic decision-making (Reckwitz, 2002), and can therefore
be seen as rationality carriers (Cabantous & Gond, 2011).
The difference between theory and practice has been outlined in previous studies, and
the variations are explained in organizational theory as firms not having the necessary
ability in using sophisticated investment-tools, and are not putting enough resources
to improve this (Sandahl & Sjogren, 2005). Moreover, the methods and techniques
that are considered to be used as basis for decision making are ignored by managers
when they are assumed not to be able to handle complexity and counteract current
fixed strategies (Bazerman, 1990). Previous research done on the effect of
technology, such as software in decision-making, is however still not fully established
(Orlikowski & Scott, 2008; Molloy & Schwenk, 1995). In general, tools acting as
rationality carriers connected to decision making, requires more research on how to
permanent produce rationality in the investment process and how rationality is
distributed between human and non-human actors (Latour, 2005). In addition,
researchers ignore the fact that rational investment decisions include complex
arrangements, where the organizational actors collectively fabricate rationality, but
also overlooks the idea that decision-making tools have a role as rationality
transporters (Cabantous & Gond, 2011). Thus, it is relevant to study rational decision
making as performative - how actors, tools and theory, together produce the reality in
which they operate in. Performativity in this sense, will highlight how all stakeholders
make sense of rationality and examine if it is in fact rational, or just reflect the idea of
rationality related to the investment case (Callon, 2007; MacKenzie,
2007).
In this paper, investment activities will reflect all investment decisions such as;
equity, technology and fixed assets, or generally described as: ‘the act of putting
money, effort and time, into something to make a profit or get an advantage’
(Cambridge Dictionary, 2017) Thus, investing into an asset or item that hopefully will
generate income or appreciate in the future. Consequently, a manager's decision to
invest into long-term assets will have a decisive influence on the rate and direction of
the firm’s future growth and success. In that sense, a bad investment decision can
prove to be fatal for the continued existence of the company, e.g. an undesired or
unsuccessful business expansion will result in substantial operating costs for the firm.
At the same time, insufficient investments and inactivity in today’s rapidly changing
business environment will make it more difficult for firms to stay competitive in the
long-run. This highlights the relevance for studying investment practices in relation to
economic theory and examine the practical implications. Furthermore, globalization
heightens the competition between companies, and investment decisions are made to
gain a competitive advantage, to attain organic growth, and to diversify risk (Cunat &
Guadalupe, 2009; Strategy&, 2017). In that sense, rationality, today, is more context
dependent and ambiguous in its definition, which is mainly due to rapid market
changes (e.g. technology development) in both the manufacturing and investment
sector (EY, 2016; Strategy&, 2017; Cunat & Guadalupe, 2009). These complexities
can partly be explained by contextual aspects, such as; size of investment, industry
specifics, the investments’ time horizon, risk-aversion and the professional actors
involved in the investment process. The different contextual factors can have different

5. 4
underlying rationales, and therefore a rational investment has different outcomes
depending on the context (Strategy&, 2017). Hence, to understand the underlying
aspects of investment decision-making, researchers can not solely explain the
assumptions of rationality by only studying normative economic theory.
Consequently, to minimize the gap between theory and practice, the ‘performative
framework’ of Cabantous & Gond (2011), which illustrates the performative praxis of
decision making, will be outlined and reviewed in order to gain a deeper insight in
how actors are influenced by theory and how they define and produce rationality in
the investment process. Thus, with performativity as a framework, the purpose of this
paper aims is to explain the production of rationality for organizations in their
investment processes, and present how managers engage in investment activities,
recognize the underlying factors affecting decision making and eventually how
organizations engineer rationality in their investment processes. The ambiguous
relationship between human actors and economic theory that is underlying an
investment decision, needs to be investigated further in order to make sense of
rationality. Finally, the role played by advisory firms will support how the responding
companies in both sectors perceive and cope with the creation of rationality. More
specifically, examine how theory and practice are interrelated in the investment
process and study how the investment practices are shaped by actors, theory and tools,
who assist in shaping the formality of investment decisions. This in turn, provides the
framework for outlining this paper’s research question:
‘How is decision making performed, and how is theory of decision making and
practice interrelated in the pursuit of making rational investment decisions?’
Theoretical Framework
Performativity - Rational Decision Making as Praxis
Previous research done in the field of decision making extradite a gap between theory
and practice. This gap can be seen as a lack of understanding on why theories are
known, but differ in their practical usage - normative decision theory vs. investment
praxis. However, researchers studying decision making within organizations have
presented a new relationship between theory and practice. This relationship can be
explored by the theories of performativity, and the approach of understanding how
organizational practices create a framework of various actors with the purpose of
producing rationality in the investment process (Cabantous & Gond, 2011). With that
in mind, it is important to further investigate how reiterated actions affect investment
decision-making, rather than just present how investment actors relate to the concept
of rationality.
In the past, a high quantity, and different versions of performativity have been
described due to its performative utterance, an utterance that does not only say
something, but also does something, i.e. praxis is made by doing something, rather
than just talking about it (Austin, 1962). According to Austin (1962), performativity
does not just describe reality, but also have the ability to shape it. For it to become a
reality, there is a need for an agreement between the setting, actors, and the audience
regarding their roles and how to develop new practices (Goffman, 1974). Moreover,
Lyotard (1979), states that being ‘performative’ is related to the result of process
input-output. In other words, performativity emerges because of something being
produced through performances (Lyotard, 1979). Furthermore, Butler (2010)

6. 5
advocates that a practice needs to be repeatedly performed if to make a practical
change. That is also supported by Latour (1986), who state that performativity relates
to the society and the continuous construction of it through the repeated performances
of the social. The performing of certain practices helps to legitimize actions and
meanings, thus the notion of what, for example rational decision making might be, or
on what grounds to decide, changes only slowly over time (Ibid). Today,
performativity is employed in several fields, among them organizational studies and it
has been translated in various ways, and more specifically into decision making,
which will be the focus of this paper. To do that, it is essential to apply performative
definitions of objects, since objects are enacted into being and when objects change,
the practices and relations related to that object changes as well (Lindberg & Walter,
2012). For example, in organizational studies, the influence of technology is
increasing in a social setting and daily interactions between users and technology
(Orlikowski, 2007; Orlikowski & Scott, 2008). These two perspectives give reason to
explore technology both as an actor and a tool, which exerts a performative effect on
decisions making, rather than pre-negotiated term that technology only serves as a
mechanical support (Orlikowski, 1996; Orlikowski & Iacono, 2001; Kallinikos,
2004), but also to investigate how actors, tools, and theory together influence
performativity. Furthermore, Callon (1998, p.2), make use of the phrase ‘economics
in the broad sense of the term, performs, shapes and formats the economy, rather than
observing how it function’. By this, the author refers not only to economic theory, but
also to human and non-human actors such as; people, technologies and decision-
making tools that together influence and shape investment practices. Altogether,
offering a view where economic theory is not by itself to be used when analyzing a
market, rather as a part of the practice that performs the market.
Earlier empirical studies on performativity have mainly been conducted on financial
markets (MacKenzie, 2007), and mundane markets (Kjellberg & Helgesson, 2006).
Both areas of research show compelling arguments for that additional empirical
studies are needed to capture the performative role of economic theory in business
practices. Further on, MacKenzie (2007), develops the concept of performativity as
either ‘generic’ or ‘effective’, where generic performativity refers to when an
economic concept (theory, model or tool) is used by participants in economic
processes (MacKenzie, 2007). Effective performativity refers to when the ‘practical’
use of an aspect of economics has a practical effect on economic processes. Effective
performativity is further labeled into two branches: ‘Barnesian’ and ‘Counter-
Performativity’. Barnesian is characterized as when the; ‘practical use of an aspect of
economics makes economic processes more like their depiction by economics’, while
counter-performativity is described as the ‘practical use of an aspect of economics
that make economic processes less like their depiction by economics’ (MacKenzie,
2007 p.55). In studies conducted on financial markets, cases have often been related
to theories and models, where one of MacKenzie’s most famous studies of the Black-
Scholes-Merton formula, displays how the formula for option pricing was used in
transforming the economy in order to make the formula more ‘real’. In this case, the
fit of the formula was gradually improved as the model exerted a performative effect
when used (MacKenzie, 2007). In other words, the actors implemented and acted
upon the model, and in that sense, the model created the reality for the entire field of
option pricing during this time. Similar studies include; Huault & Rainelli-Weiss’
(2011), study on weather derivatives and Pollock and Williams’ (2009), study on how
analytical models are used by industry analysts. Despite that, research conducted by

7. 6
Cabantous, Gond & Johnson-Cramer (2010), and Cabantous & Gond (2011), are
interesting to capture, since their view of performativity studies decision theory as
practice in an organizational setting. Moreover, studies by Kjellberg & Helgesson
(2006), have examined mundane markets, where the authors state that many different
tools, theories and models may be involved in shaping the markets. This notion draw
the attention to study how markets are performed in everyday business practices and
present how economic theory can be included as a part of the tools used in the
development of these practices.
Finally, in the scope of this paper, performativity can broadly be defined as the entire
set of processes whereby a theory influences the reality it describes, hence increases
its anticipation and eventually its social success (MacKenzie, 2007). Research done
on performativity demonstrates that the core principles of economic theory affect
management practices, tools, norms, language, and then assists in shaping the market
conditions according to the behavioural assumption of the theory (Ferraro et al. 2005;
MacKenzie, 2007). In that sense, performativity attracts our attention to different
processes where economic theories can affect investment practices. However,
performativity processes do not repeatedly lead to theory self-realization; they shape
actors’ social reality, language and praxis. Thus, performativity explains how theory,
actors and tools together create rationality in everyday organizational life. Finally,
performativity articulates three different mechanisms that produce rationality within
organizations: rationality conventionalization, rationality engineering and rationality
commodification, which will be explained further in the next section. Together these
three highlight the links between rational choice theory and the daily practices of
rational decision-making in organizations. It presents how discrepancies between
theory and organizational life can lead to deeper studies on how managers, academics
and consultants coproduce rationality in the investment process (Cabantous & Gond,
2011).
Rational Decision Making - as a Performative Praxis
Organizational studies primarily approaches decision making as a process and
consider the level of rationality within decision making as an outside variable
(Langely et al. 1995; Fredrickson 1984). However, performativity approaches rational
decision-making as a determined action of actors in search of rationality. Therefore, it
is vital to unfold the production of rationality by examining organizational scholars
who study decision making as something emerging from the actions of organizational
actors (Jarzabkowski et al, 2007; Whittington, 2006). The following section will
present the different elements and mechanisms that together compose the model of
performativity as described in figure 1 (see next page).

8. 7
Figure 1. “The Performative Framework”. Source: Cabantous & Gond (2011)
The Trinity
Theory - Actors - Tools
The economic model of rationality is used by economists to conceptualize practices
related to investment decisions (Mas-Colell et al. 1995). The first step in the model
requires decision makers to structure the problem and then define a set of alternative
decisions, e.g. scenario planning or utility functions. In the second step, decision
makers should specify each alternative in a way that reflects their preferences and
assess the probability of each alternative taking place. Thirdly, decision makers
should select the alternative with the highest possible expected value and then work to
implement it (Keeney 1982, von Neumann & Morgenstern 1947). The underlying
theoretical framework for the decision-making process derives from two different
branches within decision theory; normative decision theory and descriptive decision
theory (E.Bell & Raiffa, 1988). Normative decision theory, as in this paper rational
choice theory, advises on how to make the best optimal decision in relation to a set of
uncertain possibilities and values. Whereas descriptive decision theory describes and
analysis the existing decision behaviour of possible irrational agents. The normative
approach assumes that the individual actor can assess and make the optimal decision
to maximize the utility outcome (Myerson, 1991). By following this process, the
investment decision will in theory be considered to minimize risk and therefore also
increase the level of rationality (Cabantous & Gond, 2011). However, in business
praxis, actors may not have all the available information, thus incapable of making
fully rational investment decisions. In that sense, creating a pre-negotiated decision
process will not fully have an effect the final decision since it lacks the ability to
make use the missing data. Rather every single action performed by actors related to
the decision will eventually shape how actual decisions are performed Henry (2000).
In the model of performativity, actors include the decision makers and a whole range
of other individuals, who are contributing to the final decision. An actor inside the
organization can be a business-analyst who conduct the necessary analytics on behalf
of the final decision maker (Langley, 1989). An external actor could be a consultant
assisting in various tasks with the purpose of providing additional support for their
clients’ investment activities (Hodgkinson et al, 2006). Non-human actors can be
exemplified as investment tools and other supportive decision-making systems

9. 8
(Clemen & Reilly, 2001; Hodgkinson et al. 1999). In that sense, actors can be both
human and non-human that together affect rationality in the investment process. In a
practical perspective, both researchers and practitioners emphasize on the importance
of techniques and tools in decision-making (Reckwitz, 2002; Orlikowski, 2007). In
theory, tools are designed to produce rationality for investment decisions and support
actors in their quest to perform rational investment choices. Actors striving for
making rational decisions can overcome their limited cognitive capacities with the
help of decision-making techniques and tools (Clemen & Reilly 2001; Hodgkinson et
al. 1999). Therefore, the perception of rationality in the investment praxis will
continuously reappear in research due to technologies of model-based rationality
(March, 2006).
Rationality Mechanisms
The three links; rationality conventionalization, rationality engineering, and
rationality commodification (see Figure 1), together shape rational choice theory in
organizational decision-making praxis. Firstly, conventionalization rationality
explains how rational choice theory influence organizational practices. Secondly,
engineering rationality is a process where tools and artifacts implement rational
choice theory in organizations’ investment practices. Finally, commodifying
rationality supports the influence and diffusion of rational choice theory, and enforces
conventionalization and engineering by incorporating practitioners in the
development of the tools and methods used in investment process. The following
section will individually explain these three mechanisms.
Conventionalization Rationality
Rationality has not disappeared from organizational practices, rather is has been
turned into a ‘convention’, i.e. a social norm or praxis, guiding decisions and actions,
giving them justification (Czarniawska, 2003). Boltanski & Thevenot (2006), argue
that tools and practices embed actors with rationality, hence they inhabit a daily
routine where the definition of rationality is institutionalized - made into a
convention. Additionally, researchers argue that the cognitive embeddedness of future
managers within economic assumptions, will force rationality into a convention, i.e.
rationality as praxis (Callon 1998; Cabantous & Gond, 2011). In this
conventionalization process, the key actors are business schools and other institutions
that provide education and training for future managers, which supports the cognitive
embeddedness of economic theory (Cabantous & Gond, 2011). The understanding of
tools and practices learnt by managers in the educational process heavily impacts their
future managerial practices (Ferraro et al. 2005; Goshal, 2005). Furthermore, Liang &
Wang (2004), display a rational approach to decision-making commonly used in
business schools and this approach to management practices will eventually affect
business praxis, thus having a practical impact on investment decisions. By promoting
a normative framework, and through teaching tools and techniques, researchers have
‘equipped’ managers with normative rational choice theory and these actors are
therefore assumed to make rational investment decisions (Cabantous & Gond, 2011).
Finally, the conventionalization process forces rational decision making by
integrating managers’ embeddedness of rational choice theory into methods, tools and
practices (Scott, 1995). Nevertheless, appropriate cognitive tools support actors to
internalize rationality and practice a rational method of decision-making, thus forcing
rational decision-making into a ‘convention’ (Cabantous & Gond, 2011).

10. 9
Engineering Rationality
Studies on decision making has revealed managers to have a limited cognitive
capacity and rely on heuristics techniques to make investment decisions (Bazerman
2005; Kahneman et al. 1982; Schwenk 1984; Simon 1955). Therefore, to frame
managers as rational decision makers, it is essential to include more than the
educational background and the principles of the economic theory of choice.
Managers striving for making rational decisions need to overcome their limited
cognitive capacities with the help of decision-making techniques and tools (Clemen &
Reilly 2001; Hodgkinson et al. 1999). Bain & Company’s annual ‘Management Tools
and Techniques’ (2015), states that many companies sustain their decision-making
praxis by using techniques and tools found in management textbooks, thus offering
organizational actors a setting where they can sustain rational investment decisions
(Rigby 2001; Stenfors et al. 2007; March 2006; Callon 1998; Cabantous & Gond,
2011). This engineering process provides rationality to a whole spectrum of
organizational actors by materializing the underlying principles of rational choice
theory (Orlikowski & Scott, 2008). These devices shape rational choice theory into a
social reality that is accessible, available and possibly useful, thus potentially play a
vital role in rational decision-making because it can guarantee the reproduction of a
context favorable to making rational decisions within organizations (Cabantous &
Gond, 2011). In that sense, making economics performative requires both theory and
its practical environment - a socio-technical grouping of human and non-human
factors (Callon 1998, Ferraro et al. 2005).
Commodifying Rationality
By the conventionalization of rational decision-making, practitioners can provide it to
managers and organizations as a commodity in their pursuit of rationality (March,
2006). It supports the influence and diffusion of rational choice theory, which in turn
is implanted in practices and tools shaped by the engineering process of rationality
(Cabantous & Gond, 2011). The commodifying of rationality also enforces
convention and engineering with the aid of practitioners who develop markets and
tools for rational decision-making (Cabantous & Gond, 2011). Scholars such as
Kipping (1999), and McKenna (1995), have studied the commodification process and
observed a new spread of analytical tools and techniques aiming at improving the
operational performances and corporate strategies for organizations. Furthermore,
external consultants play an important role in supporting a decision-making practice
by convincing the users of the quality and contribution of their own business services
and advises (Clark & Salaman, 1998). Thereto, consultants also produce legitimacy to
the investment decision and aids in the implementation phase of the services provided
(Langley, 1989). As a result, consultants bring rationality into investment decision-
making and thereby undertakes a role as ‘rationality carriers’ (Cabantous & Gond,
2011). By reinforce the prerequisite to implement a rational approach to decision-
making through strategy- and decision making tools, the commodification strengthens
the conventionalization and bolster, or even ensures a diffusion of rationality
(Czarniawska, 2001). Altogether, rational decision-making involves scholars and
organizational actors who foster and spread rational decision-making through their
relationships, thus making rational decision-making both a product and a research
field (Cabantous & Gond, 2011).

11. 10
Methodology
The purpose of this paper is to present and provide insight into how organizational
actors from the manufacturing and investment sector, engage and relate to rationality
in their investment processes. This is done by using a performative approach to
decision making, where the responding companies describe their investment activities
and how they work to reinforce a structure enhancing successful investment decision.
By including the perspective of, and role asserted by external consultants in their
effort to engineer rationality for their clients, will ultimately provide this paper with a
level of unbiasedness and add another dimension in understanding of how companies
in both sectors work and relate to rationality. In this report, managers in three
different industries were interviewed; Manufacturing, Investments and Advisory.
Consequently, investments will reflect all decisions such as; equity, technology and
fixed assets or as outlined in the introduction part where an investment is generally
described as: an item or an asset that is purchased which hopefully will generate
income or increase in value in the future, where the investment can encourage
economic growth for the business.
The Setting
Manufacturing
The corresponding companies in this sector are all engaged in mass-production and
are facing a high demand for investments due to increasing international competition,
as well as technology development. The current business environment forces the
companies to invest heavily in order to improve operational efficiency, to expand
their business model and to remain competitive. Investments in this sector include
machinery, infrastructure and other investments targeting product innovation, etc.
(Strategy&, 2017).
Investments
The target respondents in this sector either invest into small or large equity stakes in
companies. In the former, the actors invest into immature businesses with an short-
term exit plan and in the latter actors invest into mature businesses. In that sense,
smaller firms invest equity in companies for short-term profit, but the larger
investment firms invest in equity, or acquire entire companies to increase growth and
expand their business (SVCA, 2017). Thus, they are similar in terms of holding
strategy, i.e. active ownership, but dissimilar in exit strategy.
Advisory
The current macro-environment is characterized by shorter business-cycles, a
reducing time-frame for the investment process and an increasing need for time-
efficient due-diligence activities (Giertz et al. 2016). To deal with this, companies
tend to seek external consultation to oversee their investment processes. Advisory
firms support the responding companies in their investment activities by integrating
software, develop investment models and act as speaking partners in the investment
process (Ibid). With that in mind, this paper study two advisory firms with the
purpose of providing a deeper understanding of the relationship between consultants
and their clients’ investment activities.
Research Design
To see the social interactions between decision makers in the investment process,
where the actual decision is an outcome of these interaction, this paper is approached

12. 11
using a qualitative method with a social constructivist mindset. By incorporating the
constructionist approach in qualitative research, we analyze the human conditions and
therefore gain a deeper understanding of the contextual settings for the companies
(Holstein & Gubrium, 2008). This approach enabled us to actively discuss our
perception and understanding of the researched field in relation to the respondents as
well as created a forum for discussion. The design structure enabled us to capture
factors and uncertainties that are discovered in the decision-making process.
Furthermore, the design is structured and relies on an abductive reasoning in order to
address the lack of clarity in terms of how to select theory often associated with the
deductive approach. Abductive reasoning handles this dilemma by adopting a
pragmatist view and therefore seeks to determine the best possible explanation to
clarify the empirical findings in this study (Dubois & Gadde, 2002). Thus, grounded
theory involving the construction of theory through the analysis of data, is a well-
suited method for this paper. In collecting additional data and reviewing the old,
codes could be grouped and put into categories which helped us to structure the
empirical findings and draw relevant conclusions (Martin & Turner, 1986).
Furthermore, few models and theories are found to explore or explain how
organizations produce rational decisions and how theory and practice are interrelated.
To address this, the paper is based on the principles of a case study, since the main
purpose for conducting a case study is that it is a suitable method for exploratory
ambitions (Dul & Hak, 2008). In that sense we claim that the case study is an
appropriate method in order to explore the topic further. For instance, Flyvbjerg
(2006) explains that is valuable to shift the focus towards a more practical and context
related approach. Consequently, this is favoring the purpose of this study, since it
allows to examine situations where contextual factors are important to the studied
phenomenon, e.g. size of investments, industry specifics and the attributes of an
individual actor (Flyvbjerg, 2006). Finally, although case studies are generally a
subject for criticism, in the case that it fails to generalize insights, we believe that
context specific knowledge can contribute to our research field (Flyvbjerg, 2006).
Data Collection
For the purpose of collecting the relevant data for the investment process, we chose to
conduct multiple interviews with decision makers from 4 manufacturing companies
and 4 investment firms, as well as the support and reasoning from 2 advisory firms
(see Table 1 on next page). In total, 19 interviews were conducted which broadened
the scope and provided an insight on how investment decisions are performed in
practice. Initially, the contact was made to a group of individuals with different
business backgrounds and responsibilities within each firm, however connected to the
investment process. This interaction gave us a good understanding of the entire
investment process, as well as generated additional contacts considered useful for our
research. These events are referred to as ‘the snowballing method’ by Kvale &
Brinkmann (2008), which strengthened the relevance of collected data and increased
the scope of the interviews. We believe that the scope and mix of investment actors,
will give us a holistic perspective on the field of decision-making.

13. 12
Table 1. “Table of respondents” The table include the sectors, companies and position of the
respondents. In total: 19 respondents.
The primary data was collected through interviews with a semi-structured approach,
where the questions were open-ended which enabled us to steer the conversation and
focus on the most essential parts of our research (Silverman, 2013). The interviews
were approached similarly, starting with a questionnaire, which was designed
individually, with few, but open questions. While performing the interviews, we
explained the purpose and background of the study. Hence, creating a mutual ground
and providing an ability for the respondents to give adequate answers relevant for our
research question (Martin & Turner, 1986). This in turn, favored the quality of the
interviews since the amount of time for each interview was limited. To create trust, all
respondents were carefully handled in a client-centered manner, thus creating a
personal encounter, favouring the trust-relationship where their opinions and private
reflections could be revealed (Kvale, 2006; Czarniawska, 2014). All respondents were
promised anonymity and provided with the ability to review the material after the
transcription process of the interviews. This approach favored the ethical dimension
of this study and avoided ethical conflicts between the respondent and the employer
(Silverman, 2013). Nonetheless, it is essential to overcome the power asymmetry
potentially occurring during an interview as mentioned by (Czarniawska, 2014),
therefore we favored a discussion forum rather than an examination. Furthermore, the
secondary data was primarily provided by the responding companies, with documents
regarding their investment processes and current business environment, as well as
other factors that could potentially affect their business. The purpose of collecting
secondary data was primarily to comprehend what empirical evidence until this point,
had been conveyed in our research area and how that material could be related to the
purpose and the results of this study (Silverman, 2013).

14. 13
Data Analysis
The choice was made to record all interviews, if granted by the respondent, giving us
the advantage to analyze the material afterwards and by that not omit essential facts
stated by the respondent during the interview (Silverman, 2013). Moreover, to gather
as much information as possible, one person led the interview, while the other
observed the conversation and took notes. Through observing the conversations, we
enhanced our understanding of the specific contextual setting, thus useful as a
supplementary method for collecting data (Silverman, 2013). After the interviews we
initiated a session of reflection on the result of the interview, which enabled us to
discuss and deepen our understanding. Since the collected material was continuously
analyzed during the interview phase, we developed new ideas and research angles
enabling us to understand the field and ask more adequate questions enriching the
study (Martin & Turner, 1986).
The collected data were analyzed in two steps, in accordance with the grounded
theory approach mentioned by Martin & Turner (1986). First, we evaluated our
transcripts thoroughly and outlined the material into key points related to each
interview. This facilitated us to notice and divide emerging patterns from the
interviews and evolve a comprehensive understanding of the decision-making
process. Additionally, notes and observations during the interviews was taken into
consideration and analyzed in relation to the data in the interview transcripts. In the
final step of the analyzing process, the collected data was coded and categorized into
relevant themes to answer our research question. The identified and selected themes
were structured accordingly; ‘perception of rationality’, ‘investment process’,
‘methods and tools’, ‘decision theory’, ‘composition of teams’ and ‘external
consultation’. Moreover, the themes facilitated the process of comparing the results
with our theoretical framework. The themes became the initial target for what
material to highlight and what material to exclude, and as a result all gathered
material was not used, since parts of the data was not relevant for to the purpose of
this study and failed to support our research question (Silverman, 2013). After
analyzing and coding all material the themes were categorized into three different
universal rubrics: ‘Uncovering Rationality’ and ‘Unfolding the Investment Process’.
This highly structured process granted us the ability to conduct a thorough analysis of
the gathered data and supported us to make well informed conclusions.
Limitations
Firstly, we have not been able to follow the organizations for a longer time-period, as
well as the fact that the examined industries are highly context specific, something
that potentially limit the scope of this study. However, to address these limitations, we
decided to include the role played by advisory firms and analyze their understandings
of what drives the development of investment practices. Nonetheless, it is difficult to
draw general conclusions, since we can not claim that the respondents are fully
representative for these industries. In both the investment and manufacturing sector,
the investment process might differ a lot, which makes it difficult to apply the same
general assumptions across the sectors. Secondly, we are conscious that our study
only provides a certain picture, at a certain point of time. Thus, a continued study over
a longer time period with additional interviews could result in new findings,
especially in regards to how the idea and perception of rationality can change over
time. Finally, the market challenges faced by firms are present at this point of time

15. 14
and we cannot proclaim that this will be the case in the future, which is limiting the
time-frame relevance of this study.
Empirical Findings
In this section, there will be a presentation of the collected data from the respondent
companies, concerning how they perceive and describe rationality in their daily
investment activities. This is followed by a section outlining the investment processes
for both sectors in relation to the role played by the interviewed advisory firms.
Throughout the investment process, the responding actors make use of different
models and tools, as well as consultant, to create a framework for making rational
investment decisions. In that sense, this section needs to be presented if we are to
understand the underlying praxis of creating a support structure that is favouring
successful investment decisions.
Uncovering Rationality
The respondents in the manufacturing industry, state that the creation of rationality
derives from internally developed procedures and industry specific knowledge gained
from years of experience in the sector. Respondents explain that the internal
investment process supports the investment team to maximize utility from the
investment and achieve a positive return on investment (ROI), which is described as a
rational outcome:
I perceive rationality in my line of work, as making investment activities that will
provide additional revenue to our company in a specific time-frame, as well as
making necessary investments in order to cope with increasing
competition...especially competition deriving from digitalization - Head of Global
Logistics (M2)
However, there is clearly a difference depending on what type of investment the
companies are dealing with, e.g. investment decisions concerning new machinery,
staff and product development are handled differently compared to international
investment such as building a new production center. In the former, there is generally
no need for external advisory services before making the final decision, which stands
in contrast to the latter, i.e. foreign investments, when it comes to the usage of
external consultation. This is further explained as:
Investing into new products, we do not seek advice from external consultation, since
we have sufficient experience in the area and have done it successfully in the past.
However, if we are investing into a new factory abroad, we seek external consultation
from Business Sweden, etc…and their consultation provides us with expertise
knowledge in the region we want to invest in - Senior Finance Project Leader (M1)
By seeking consultation from Business Sweden, the responding company (M1),
explains that they get access to expertise knowledge on different geographical regions
in how to conduct business successfully. Furthermore, they consider this action to be
helpful in minimizing risk and further support the level of rationality throughout the
investment process. This notion is further supported by (M2), who explains how they
work with external advisory consultants when dealing with complex investment
decision. In this case, consultants do not influence the decision process, but are hired
to validate and legitimize the final decision for internal and external stakeholders, i.e.
acting as a speaking partner:

16. 15
In the late phase of the investment process, we hire consultants to validate rather than
influence the final decision, which often is required from top management...if they are
to approve the final investment decision. Thereby, the consultants do not take the
decision for us, instead they provide us with a second opinion - Head of Global
Logistics (M2)
In that sense, the respondent argue for that the investment decision will be examined
and evaluated from different perspectives deriving from the expertise knowledge of
the advisory firms. The respondent states that this will provide confidence to the
investment decision and favor utility maximization in the long-run perspective.
Following this, the respondents consider the need for external consultation as praxis
within the industry, thus portraying the company as a rational entity against
stakeholders. Additionally, the Chief Financial Officer in (M3), brings forward a
more detailed description on the reason for why they hire external consultancy firms:
The consultancy firms have models and tools, rooted in economic theory, that helps us
to speak the same business language and make more well-informed and analyzed
investment decisions that is understandable for all parties. Without a common-
ground, it becomes harder for our employees to be consistent in their line of work and
minimize risk. Thus, providing both internal and external stakeholders with
legitimacy during the entire investment process - Chief Financial Officer (M3)
In this case, the external consultants influence the investment process with a
theoretical framework, i.e. through their pre-constructed models and tools during the
entire decision-making process, which they state will have a more profound impact on
the final investment decision. Furthermore, the respondents state that the consultants
support in incorporating and understanding rational investment models that will both
structure the process, make it more efficient and support the company to take more
well-grounded decisions, as well as educate the personnel. In relation, the Partner in
Corporate Finance (C1), explain that they provide a universal framework to improve
the understandings of the complexity in decision making, ultimately ensuring that
every decision is risk-averse and strives towards maximizing utility. Additionally, all
respondents claim their thought of rationality derives from working with extremely
competent colleagues, having several years of experience within the industry, thus
stating that industry experience is a vital part for creating rationality. Finally, their
definition of rationality differs a lot depending on the contextual setting regarding the
specific investment, but in general all respondents agreed upon that rationality derives
from a structured series of processes leading up to the final decision.
The respondents in the investment sector perceive rationality as something produced
in the investment process and that the process needs to be reiterated continuously in
order to improve the structure. In this process, the respondents claim that they
incorporate different economic models and measure their activities to benefit the yield
of the investment. In that sense, the firms can throughout the process, exclude
unnecessary events and minimize errors, making the chain more efficient:
We have developed a comprehensive framework for our investment process, where
the basics for all types of investments will be reviewed and analyzed, as well as more
specific aspects. A commonly used program, that everyone recognizes and use is
Microsoft Excel, which we construct and develop to match our specific setting. In this

17. 16
case, we believe that the framework will prevent us from making basic mistakes and
therefore minimize the risk of human error - Chief Financial Officer (I1)
However, all respondents in company (I3) explains that a standardized investment
process is problematic for them, since every investment is highly context dependent.
Thus, the investment manager emphasizes on the importance of building a strong and
dynamic investment team, that is adaptable to different investment cases, rather than
only working according to a standardized investment structure. Furthermore, the
respondents from company I2 states that if they are to produce rationality in the
investment process, they need to have quantifiable goals and measurements in the
process. So, by using investment tools such as; developed spreadsheets, financial
analysis and business intelligence software, as well as continuously educating people
involved in the process, the respondent states that this structure favor their perception
of rationality and can be an efficient way to analyze the potential success of an
investment. The Investment Manager in (I4) supports this notion and structure by
explaining how they work with strategic investment activities:
Rationality for me is to have quantifiable goals in the acquisition process and relate
those goals to the overall strategy of the organization...by supporting that practice,
we can continuously improve our investment activities and thereby more frequently
make rational decisions - Investment Manager (I4)
The respondent hereby explains a critical factor for making rational investments,
where organizations need to have agile investment processes with quantifiable goals,
rather than a standardized fixed procedure. In that sense, the respondent argues for an
investment process where the investment managers and other actors involved in the
investment, are the key influencers of the final decision, while the structure of the
process should be seen as a rationality supporter.
However, there is a difference between how the respondents perceive rationality. In
general, actors dealing with investment decisions in smaller investment firms such as
(I1), describe a softer definition of rationality, in comparison to respondents in the
bigger investment firms as (I2), (I3), and (I4). The investment processes in larger
firms are more frequently based on sophisticated investment models and tools, since
there is more information and data available to analyze. This stands in comparison to
the process in smaller firms, where information concerning the investment object is
limited, hence intuition and another approach to the due-diligence process, such as
examining human capital and pre-stage business plans are seen as rationality carriers.
However, it is generally explained that for a decision to be perceived as rational,
stakeholders affected by the investment need to gain from the final decision, hence
creating long-term relationships which generates overall value. If everyone benefit
from the decisions made by the investment firm, the company will be considered as
competent and reliable, which means that other competitive stakeholders will be more
likely to continue their collaboration. Thus, this will favor rationality and utility
maximization even in the future, as stated by the respondents.
Consequently, defining rationality in the investment sector, gives no coherent
response, since every investment process may vary, but at the same time, there is an
agreement on the necessity for creating a ‘dynamic investment teams’, in charge of
making the final investment decision. Furthermore, the respondents explain that there
might not be a universal team for every investment case within the firm and the team

18. 17
can vary depending on contextual investment preferences and settings. This reasoning
is further elaborated on by the Investment Manager in (I4):
When we select the individuals responsible for the investment process, we
consider people with various background, both in academics and in their professional
life, as well as a proven track record...especially since we act in the private equity
sector and all investments are somehow unique and enacted in different contexts -
Investment Manager (I4)
Rationality in that sense, is explained as allocating different competencies, i.e.
combining individuals with a proven successful track-record in dealing with different
investment cases. Hiring consultants, and other external experts with expertise
knowledge in the specific investment object or sector, is also described as a way of
addressing complexities and uncertainties in dealing with different investments.
The interviewed advisory firms have similar definitions of rationality and their view
upon the subject can be described from an external perspective, meaning that they add
another dimension for understanding the perception of rationality related to
investment activities. Their business model builds on the concept of providing various
consultancy services with the purpose of simplifying and supporting investment
decisions for companies. The respondents in this sector, claim their role to be
supportive in nature and to provide expertise knowledge for companies dealing with
complex investment decisions. Hence, consultants work according to and provide
their clients with, a well-structured process, where their contribution to rationality is
measurable and strives to implement economic theory into practice. The consultants
use known theoretical models taught in business schools and developed by
researchers to engineer their product portfolio, and by doing that, they diffuse theory
through their relationship with clients. Ultimately, the advisory firms believe that this
will favor rationality in the investment processes, since their products are based on
economic theories and business praxis:
We provide entrepreneurs with methods, tools and other material supporting them to
make a well-grounded investment decision. We also explain what effects an
investment might yield and the corresponding risks...our aim is to put all the cards on
the table and let them finalize the decision - Partner, Accounting (C1)
This statement confirms the traditional role of consultancy firms, providing their
clients with additional information promoting and strengthening the concept of
rationality for companies working with complex investment activities. However, the
final influence and impact of consultancy services varies depending on contextual
business settings. Meaning that some firms rely more extensively on consultants,
whereas others see their advices as second opinions and as something legitimizing
their final decision towards external stakeholders, which is further outlined by the
Director Corporate Finance in (C1):
There is clearly a big difference in how clients make use of our products and advises.
Some of them strongly use our recommendations, whilst others use us as a speaking
partner and as a service that will legitimize their business actions...thereby making
them trustworthy to stakeholders - Director Corporate Finance (C1)

19. 18
In that sense, the respondents from both sectors argue for that consultancy services
are indeed useful and aids them in the investment process, providing sophisticated
investment procedures, a common investment language and as a legitimizing speaking
partner ensuring external stakeholders that the investment is sound and profitable.
Furthermore, respondents perceive rationality as a process of continuously improving
their services and tools, making them more adjustable to future decisions and to
different potential scenarios. This will eventually prepare the models to cope with
future investment complexities, as stated by Head of Accounting in (C1):
It is hard to predict the future...therefore, rationality is more difficult to produce.
Previous theories and models do not explain the reality anymore, thus a continuous
improvement of processes and prepare for future scenarios are more necessary now
than ever before - Head of Accounting (C1)
The interviewees perceive the current business environment as highly volatile and
hard to predict. Therefore the responding advisory firms feel the need to assume the
role as a speaking partner and further develop their product portfolio, which make
their services more suitable and adaptable to deal with market disturbances.
Additionally, the consultants express a need to educate their clients in their usage of
more advanced investment methods and tools provided by the advisory firms. Finally,
they state that rapid technology development across industries makes it harder for
them to produce rationality for their client’s investment processes:
We need to adapt to new strategies, products, services and new ways of thinking. The
risk of making the wrong decision today is big, although the risk and the
consequences of doing nothing is even bigger. Hence, it crucial to make investments
to stay competitive and those decision makes it hard to define what rationality is -
Partner Accounting (C1)
The two advisory firms are clearly portraying an ambiguous picture where rationality
is harder to define and therefore also to produce in the investment process. Rationality
today is even more context dependent than before which is increasing the complexity
of consultants’ work and the usage of their services. Thereby, consultants structure
the models according to normative economic theory, but also recognize the need to
figure out how to make their models more applicable and reflexive to change. Due to
the increased complexities and technology advancements, the time aspect today
becomes highly important when engaging in investment activities. The importance of
time is further supported by statements from the consultants, where they argue for that
rationality today and in the future, will be highly correlated with the time-frame of an
investment. In that sense, the advisory firms state that their clients need to take
quicker decisions to stay competitive, thus highly structured and fixed investment
processes, as mentioned by several respondents in both sectors, will be less effective
and therefore possible excluded in the future.
Unfolding the Investment Process
This section will outline the investment process in both industries as well as the
external role played by advisory firms. Additionally, different categories of
investments and factors underlying the investment decision will be illustrated, as well
as how rationality is structured and eventually produced throughout the investment
process.

20. 19
Manufacturing firms
According to the respondents in the manufacturing sector, the investment process is
described in different sections, where the companies make use of proprietary in-house
models and framework throughout the entire process. Furthermore, they work closely
with an internal investment-board responsible for making the final decision, although
the process of getting there is separated. Several teams within the companies are
working independently in the value chain, striving towards maximizing value in each
step. This means that experts within the firms are continuously evaluating the
investment prospect and thereby structure the model to be more efficient and dynamic
in dealing with changes in terms of market and technology development. Thus, the
company in theory, benefits from a more qualitative chain where each step of the
process is refined by experts which ultimately generate the best possible outcome.
Additionally, teams are continuously having a dialogue with the investment-board on
how to maximize commercial, financial and industrial value. This is described as a
highly structured process, which is built upon previous industry experience and
models created in-house throughout the years (e.g. Microsoft Excel is described as the
most internally used program).
Moreover, the respondents explain that they make use of an economy
monitoring system during the investment process, with the purpose of minimizing risk
and human error. This system supports the firms to make use of different financial
targets to facilitate the production of rationality and thereby profit maximization.
Thus, they believe that their perception of rationality is supported by the systems
constructed through industry experience and previous practices. Furthermore, by
hiring graduates from business schools, the companies claim that they are exposed to
economic theory, which will in turn affect their investment process. Additionally,
external consultation provides various business theories through their pre-constructed
methods, models and tools originating from academic research and previous best
business praxis. In that sense, the respondents from the manufacturing sectors explain
that advisory firms support their firms with measurability, trackability and in
understanding future potential consequences of the investment, and thereby minimize
risk and prepare for eventualities, hence supporting utility maximization in the final
decision.
The general consent is that the manufacturing firms are becoming more process-
oriented and therefore less adaptable to change. In that sense, the investment process
becomes generic and more complex to apply to specific investments. However, the
respondents in company (M1) describe their work with structuring new models and
processes from previous experiences, which in turn are implemented on different
levels within the company. The respondents consider this procedure to strengthen the
adaptability in each unit. Additionally, these firms are heavily targeting economic
profits as a basis for rationality and consider profit maximization as the ultimate form
of rational behavior. The respondents explain when dealing with structured and
process-oriented models, the flexibility is harmed and as a result the company fails to
manage quick and necessary investment decisions. However, the respondents reflect
on another important factor affecting rationality in decision-making, i.e. the need for
staying competitive. On this subject, all firms agree that some investments, e.g. invest
into innovative solutions is essential, but may not yet be profitable. This can be
illustrated by an example from the Chief Financial Officer in (M3), stating the need
for investments into complex innovative solutions, even though it is not profitable for
them at the time. Despite that, it is deemed crucial for the brand image and the

21. 20
respondents describe this as something forcing them to make irrational investments.
This is described as a ‘follower-strategy’, where firms examine competitors before
deciding on how to act, thus affecting the rational behavior.
Investment firms
The investment process for the responding firms are similar in the investment
structure, however they tend to focus on different key factors before making the final
decision. This is a result of the investment strategy and the characteristics of the
investment object, as described in the methodology chapter.
The following section will outline the general investment process (see Figure 2), for
the responding investment firms:
Figure 2. “The investment process”. A process emerged from the empirical findings.
During the entire investment process, the firms have quantifiable goals in every step
with the purpose of continuously evaluating the process and favor rationality in terms
of minimizing risk. This enables the companies to frequently evaluate the investment
object, thus minimizing the risk for making a disfavorable investment. This is
exemplified when respondents mention the importance of scenario planning and that
scenario planning allows the firm to evaluate different strategies and continuously re-
evaluate their investments, which is further explained by the Investment Manager in
(I1):
By creating scenarios and continuously evaluate our investments we always learn
how we can develop our investment strategy and improve our investment selection
process, thereby we create a ground for rational decisions to be made and therefore
have a bigger accuracy in making profitable investments - Investment Manager (I1)
Thus, the respondents state that in using scenario planning as a tool in the investment
process, will help them to establish a forum for discussing different potential
investment outcomes, such as risk detection and future management of the investment
object. However, a downside in using this activity according to all respondents in (I3),
is that this is usually quite time-consuming and therefore, in some cases, have a
negative effect on the time-frame of the investment.
Furthermore, all the respondent companies make use of management reviews,
expressed as ‘Human Capital Due-diligence’. The Partner in Human Resources (C2)
explains that this procedure evaluates and identifies key personnel deemed vital for
the future success of the firms. Moreover, it is necessary for the investments firm in
an early stage to be able to evaluate the management in the investment object in order
to ensure less operational involvement for the investment firm in the long run, so they
instead can focus on the strategic development. The Investment Director in (I4) states
that they want to create a long-lasting relationship with the management to favor the
trust-relationship and the ability to co-operate in the business development phase. In
contrast to the human capital due-diligence, all the respondents present the financial
due-diligence process as not as important, and only as a tool to validate the
investment. Rather it is about finding a quality investment object with a great business
plan in a sector displaying a positive trend, as well as having a good management
Identify
Demand
Market
&
Trend
Analysis
Due-­‐Diligence
Process
Presentation
-­‐
Board
and
Committee
Decision,
SpeciJic
Valuation
Business
Development

22. 21
team capable developing the company further. In other terms, seeking long-term
investments that are benefiting all stakeholders are seen as acting in a rational
manner. Moreover, both the CEO and the Investment Manager in (I3) state that by
following this investment structure in each case, the investment managers can early
on evaluate the future business potential of the investment object. This in turn is
explained to increase the success ratio of the investments, by continuously evaluate
and improve the model for the investment, making it more efficient and cost-
effective. Furthermore, external consultancy services are used in the due-diligence
process and in this process, consultants contribute with both expertise knowledge,
crunching numbers activities and acts as a verifying second opinion to stakeholders.
These consultancy services are further described by the Investment Manager in (I2):
When we initiate an investment process, we always consider to hire external advisory
services from the big consultancy firms. This can help us to verify our results and
handle some of the work in our due-diligence process...which is usually very time
consuming. Even if we have the capability of doing it in-house, we use consultants to
minimize the time-aspect - Investment Manager (I2)
Again, this statement shows the importance of time in the investment process. The
respondent clearly explains the need of hiring consultants to reduce the time-span of
the investment process. Moreover, the investment process can somehow be influenced
by the educational and professional backgrounds of the employees, since the
investment professionals in the responding companies are mostly recruited from the
big American advisory firms, as stated by the Chief Financial Officer in (I1).
Consequently, the respondent illustrate that the investment process is therefore more
likely to influence and alter their perception of rationality.
The idea of Human Due-diligence is further demonstrated as important by Company
(I1), which is characterized by investing into smaller and more immature business
ventures. Their valuation models is different since there is less financial data to
examine and the investment process will therefore incorporate other important factors
compared to investments in more mature businesses. The lack of financial data, and
the uncertainty of future market success, shifts focus towards a softer and more
humane approach, where the main basis for an investment decision derives from
evaluating the human capital:
For me, the team is the most important factor. A great team with a bad product can
succeed, but a bad team with a great product will most likely fail. Additionally, there
is less financial data available for us, which is increasing the need for looking the
team behind the investment object – Business Developer (I1)
Following that statement, the firm describe that they use a set of corresponding
factors related to the investment process. Firstly, all the individuals in the investment
team have different complementary business backgrounds, which enables the firm to
make professional and well-grounded decisions. It also enables the organization to
successfully invest into a variety of markets, since the investment team have a
diversified skill-set and knowledge base, which is also contributes to spread the risk
in the investment portfolio. Secondly, they rarely invest alone in immature and early-
stage businesses, rather they tend to share ownership with other investment firms. In
that sense, they use other investment firms to validate their decision, and by this
increase the flow of information and minimize the possible down-side of the

23. 22
investment. Thirdly, as a proactive measure, the firm travel abroad to find inspiration
for making their own investment process more reliable and efficient, e.g. trips to
Silicon Valley, or more specifically, the ‘Nordic Innovation House’. As a result, they
demonstrate that best market praxis related to investment decisions will be diffused
and thereby influence the models and tools used in the Swedish investment sector.
Finally, after the investment decision, the investment firms provide their investment
object with their own expertise personnel, both legal and financial support to further
develop the investment object and maximize the utility of the investment.
In summary, rationality as described in normative economic theory is often deviant
from the practical experiences and definitions of the respondents. This gap, derives
from different aspects such as; contextual setting, technological development,
individual actors (educational background and professional experience) and their
interaction with non-human actors (decision-making tools), which together affect how
they perceive rationality. The tools and models presented earlier in the empirical
findings have a role in producing rational decisions, and in guiding the actors to make
rational investments. However, the current business environment is getting more
complex and the models can no longer, in their intuitive ability, solely explain and
predict the business reality. Consequently, it is interesting to present and review how
different models and tools engineers an alternative view of rational decision-making.
In that sense, rationality can vary in each investment and therefore increase the
relevance for examining how rationality is engineered and adapted in its explicit
context. It is intriguing to deepen the discussion regarding how these factors together
perform rational decisions and to question the norms of rationality for investment
decisions.
Discussion & Analysis
The Genesis of Making Rational Investment Decisions
In the manufacturing sector, the investment process is described as a value-chain
where various specialized teams operate in different steps of the chain. Thus, experts
in each team, and step, evaluate and develop the internal investment model to be more
intuitive and dynamic towards other internal business units. In that sense, using
economy monitoring systems, and a close discussion with the investment-board, as
described by the respondents, supports the institutionalization of rationality
throughout the company and facilitates a common language for understanding their
perception of rationality. Boltanski & Thevenot (2006), state that tools and practices
embed actors with rationality, hence actors inhabit a daily routine where rationality is
made into a convention (Cabantous & Gond, 2001). This is an important step to create
a common language, and ground, for making rational decisions, which further
supports the conventionalization process of rationality within the manufacturing firms
(Cabantous & Gond, 2011). Altogether, rational decision-making involves scholars,
organizational actors and consultants, who foster and spread rational decision-making
through their relationships, and as a result, fabricating rational decision-making as a
commodity. The commodification of rational choice theory is strengthened when
academics create and develop tools, where theory is translated and integrated, which
in turn will support organizations to process and facilitate rational decision-making
(Keefer et al. 2004). This is a process continuously practiced by the manufacturing
companies, where they make use of external advisory services in their investment
processes, which in turn can be seen as purchasing rationality as a commodity. This
process of institutionalization is further supported by the interviewed advisory firms,

24. 23
who provide business theories and practices through their pre-constructed models and
tools to their clients. By frequently making use of these methods in the investment
process, the engineering process of rationality is evident for the responding
companies. Moreover, the manufacturing companies tend to implement the models in
‘good-faith’, since they acknowledge these procedures to have a significant positive
and beneficial impact on their investment activities. However, these procedures
cannot guarantee a successful investment outcome and can therefore potentially have
a counter-performative effect on the expected value of an investment. In that sense,
these processes of conventionalization rationality can negatively impact the level of
success for an investment, since the performative process will embed actors with a
sense of rationality as fixed, and not adaptable or susceptible to change (MacKenzie,
2007). In contrast, for the investment firms, the investment process is recognized as a
guiding praxis, which in combination with diversified investment teams, results in a
more adaptable decision praxis. Additionally, the investment firms tend to more
frequently re-evaluate their investment strategies. As a result, they create a forum for
re-evaluating and discussing rationality, which can be seen as the institutionalization
of their perception of rationality in a structured manner.
Furthermore, all investment teams heavily rely on different tools and heuristics
techniques for simplifying their decision-basis, but also to help them to understand
and solve complex investment problems (Bazerman 2005; Kahneman et al. 1982).
Generally, the investment teams have been developing and remodeling their own
support systems which is then passed on to new co-workers. As an example,
Microsoft Excel are the most commonly used program by the responding firms, and
assist the investment actors through a wide range of different business intelligence
activities. As a result, decision makers’ experience in and usage of these programs,
further diffuse their perception and understanding of rationality. Moreover, the
manufacturing companies make use of an economy monitoring system during the
investment process, and this system supports the firms to make use of different
financial targets to facilitate the production of rationality. Hence, the diffusion of
theory can be ensured throughout the investment process by the systems constructed
through industry experience and previous praxis. In contrast, the investment firms
have a different approach to internally developed systems. Instead, they focus on
dynamic and interactive models and tools, which enable the investment teams to
easily adapt the systems to each specific investment case. Another important
procedure for the investment sector is the usage of scenario-planning modeling, where
traditionally four different scenarios are reviewed and by this, the investment team
can test the stress-level of a potential investment. In that sense, the investment firms
are generally more ‘project-oriented’, while the manufacturing firms are more
‘process-oriented’, where they tend to not adapt investment practices to each specific
investment case. This project-oriented support structure enables the investment
process for the investment firms to be more agile and proactive, which is favouring
rationality in its explicit investment context where organizations can more frequently
make rational investment decisions. Following that, it is quite clear that companies
and the people working with investment decisions, need the interaction between
professionals and non-human actors, such as decision-making tools, if they are to
make rational decision theory performative. An interaction and praxis, further
supported by Clemen & Reilly (2001), Hodgkinson et al. (1999) and Kjellberg &
Helgesson (2006). By relying on these tools, managers can overcome their limited
cognitive capacities according to Clemen & Reilly (2001) and Hodgkinson et al.

25. 24
(1999). In that sense, the devices, originated from rational choice theory, will
engineer rational choice theory into a social reality that is accessible and useful,
which potentially will play a crucial role for making rational investment decisions. As
a result, the human actor together with her tools, can guarantee the reproduction of a
context where decision makers more frequently make rational decisions (Cabantous
and Gond, 2011). Subsequently, making economics performative requires both theory
and its practical environment (Callon 1998, Ferraro et al. 2005). The engineering
process is supported by interaction between human and non-human factors and
provides rationality to a whole spectrum of organizational actors by materializing the
underlying principles of rational choice theory (Orlikowski & Scott, 2008).
External Consultation
The need for financial- and decision-making models to be more adaptable and
applicable, shifts focus towards the role played by advisory firms. Advisory firms
operate in wide range of different business context and are exposed to various
investment dilemmas on a regular basis, and therefore inhibits a profound and
expertise knowledge in how companies should act in different investment procedures
and contexts. Furthermore, consultants have an important role in supplying a range of
different methods and tools to support companies’ investment activities and make
them more applicable to reality. This assumption is supported by Clark & Salaman
(1998), where the authors argue for the important role played by external consultants
in supporting investment practices by convincing the clients of the quality and
contribution of their consultancy services. By conventionalization rational decision-
making, practitioners, in this case consultants, can forward it to managers and
organizations as a commodity (March, 2006). In that sense, consultants reinforce the
prerequisite to implement a normative rational approach to decision-making, thus
having a real impact on their clients’ investment processes (MacKenzie, 2007). Thus,
consultants provide different strategy- and decision-making tools, supporting the
practices they implement, which in turn strengthen, or even ensures, a diffusion of
rational choice theory in the performativity approach. In turn, this can be explained as
an engineering process of rationality, where the fit of the investment process will
gradually be improved as the model exert a performative effect when practiced
(MacKenzie, 2007).
Furthermore, the decision makers can overcome their limited cognitive capacity with
the help of decision-making techniques and tools (Clemen & Reilly 2001;
Hodgkinson et al. 1999), provided and implemented by the interviewed consultants,
strengthening the ‘barnesian’ performativity effect. In that sense, making theory
performative requires both theory and its practical environment, i.e. actors and the
decision-making tools connected to the investment (Callon 1998, Ferraro et al. 2005).
However, the empirical findings points to another conclusion where it is becoming
more difficult for external consultants to efficiently apply their traditional models and
techniques into practice. The responding advisory firms confirm an increased
complexity in supporting firms in their investment process and therefore require a
more customized approach if value is to be created for their clients. This phenomenon
potentially derives from using outdated models and tools as basis for investment
activities, as these fail to explain and predict the complexity of both the current and
future market shifts. Consequently, in the current volatile market where the future is
hard to predict (Strategy&, 2017; EY, 2016), methods and tools provided by
consultants, might have a ‘counter-performative’ effect on the investment decision,

26. 25
meaning that they can in fact decrease the level of rationality in the investment
process (MacKenzie, 2007). Additionally, MacKenzie (2007), states that when
organizations strictly implement models and frameworks that are detached from
reality, they run the risk of getting a counterproductive effect on the implemented
subject, which in this case is rationality.
The fall of theories and the rise of heroes?
The difference between theory and practice has been outlined in previous studies and
the variation is explained as firms not having the ability to use sophisticated
investment-tools, and are not putting enough resources to improve this (Sandahl &
Sjogren, 2005). In that sense, it essential for both investment actors and advisory
firms to fill the gap between theory and practice through constructing their ‘Toolbox’
to be even more performative, i.e. adaptable to each specific investment case by the
relationship between theory, actors and tools, but also in tutoring the investment
teams in their ability to make sense, and use the tools in a efficient and professional
manner. According to Austin (1962), performativity does not just describe reality, but
also have the ability to construct it. For it to become a reality, there is a need for an
agreement between the setting, actors and the audience regarding their roles and how
to develop new practices. Thus, the relationship between actors and tools creates a
common ground for theory, which will increase the probability for ‘barnesian’
performativity (MacKenzie, 2007), resulting in that the actors’ perception of
rationality will be implemented and ensured in the investment process.
The perhaps most critical perspective on the concept of making decision-making
performative, refers to when the influence of economic theories becomes too strong
and therefore part of constructing the business reality for an industry. In that case,
theory creates the contextual settings, but also the market conditions for the industry
actors, which can potentially lead to big market failures. Thus, economic theory
becomes real and part of shaping the practical commitments of the professional actor.
This is related to one of MacKenzie’s (2007), most famous studies of the Black-
Scholes-Merton formula, who showed how the formula for option pricing was used in
transforming the economy in order to make the formula more ‘real’. In this case, the
fit of the formula was gradually improved as the model exerted a performative effect
when used, which eventually led to massive market failures. In other words, the actors
implemented, and acted upon the model, and in that sense, the model created the
reality for the entire field of option pricing during this time. This notion makes it
evident that theory drives practice and can have a performative effect, either positive
or negative, which is supported by Kjellberg & Helgesson (2006), who state that
different tools, theories and models may be involved in shaping a market. Again, it
points to the importance of education in the investment process, the creation of a
shared investment language, and flexible tools, connected to business reality that is
favoring each investment case.
As emerged from the empirical findings, normative economic theory studied
in business schools, are diffused through models and tools as a commodity by
consultants, as well as internally developed by investment actors within organizations.
However, these theories and models partially fail to deliver a reliable and adaptable
investment structure for decision-making. As a consequence, organizational actors
tend to abandon these models and techniques. In that sense, it becomes harder to rely
on previous investment practices and models, and as a result, rational investment
decisions as a performative praxis could be discarded. In this case, external factors

27. 26
such as digitalization, increased competition and shorter business-cycles, increases the
need for making quicker and more efficient investment decisions in order to stay
competitive. Orlikowski & Scott (2008), exemplifies this by arguing for that the
influence of technology is increasing in a social setting, as well as in its daily
interactions between users and technology. Furthermore, Callon (1998 p.2), make use
of the phrase: ‘economics in the broad sense of the term, performs, shapes and
formats the economy, rather than observing how it functions’. By this, he refers not
only to economic theory, but also to human and non-human actors such as; people,
technologies, procedures, and tools, that together influence investment practices.
Accordingly, investment professionals continuously need to develop these tools to be
more more adaptable to context and different investment scenarios in order to have a
real performative effect. Otherwise it could potentially have a ‘generic’ performative
effect, or even be ‘counter-performative’, if not applicable to the specific investment
case of the company, as it will fail to support the production of rationality
(MacKenzie, 2007). Therefore, it is vital to resolve and focus on the individual actor
connected to the investment decision, since they have an extremely vital role in the
creation of rationality for the investment process. This reasoning supports the praxis
of building strong and dynamic investment teams, a common practice mentioned by
several of the responding companies, particularly in the investment sector.
Furthermore, the respondents claim that they can make use of consultants to support
their business activities and therefore increase the level of diversity in the investment
teams. Hence, the role of consultants, and the need for their services, will vary
depending on industry context and by the professional backgrounds of the actors in
the investment teams. By using consultants, the duration of due-diligence activities,
and structuring information connected to the investment case, will rapidly decrease.
Therefore, organizations could be enabled to make quicker decisions and be better
equipped to handle complexities and uncertainties that are characterizing markets
today. The ’best practice’, and the theoretical knowledge, is embedded within the
actors, which is improving the foundation of making a rational investment decision
capable of dealing with different scenarios on a more frequent basis. In that sense, it is
evident that the power of teams, and their composition, could be a key success factor
for making rational investment decisions in the future.
In shifting focus from a theoretical framework towards the action of the
individual actor, heightens the need for companies to further increase the evaluation
of human capital. It is a softer, and perhaps a more complex evaluation, which
increases the demand for specialized advisory firms’ who are experts at conducting
human resource due-diligence. Through this process, the respondents believe that they
can ensure the required expertise in every investment case. In addition, Lyotard
(1979), states that being ‘performative’ is related to the result of process input-output.
In other words, performativity emerges because of something being produced through
performances (Lyotard, 1979), again it is important to comprehend and evaluate the
actions of the specific individuals. Furthermore, Butler (2010), advocates that a
practice needs to be repeatedly performed to make a practical change. The performing
of certain practices helps to legitimize actions and meanings, thus the notion of what,
rational decision making might be, or what grounds to decide, changes only slowly
over time. In order to legitimize and actively work sustain the relationship between
human and non-human actors, it is essential to build a bridge between theory and
practice, where actors continuously repeat the actions that is most likely to generate a
favourable investment decision. As a support, organizations can build a performative

28. 27
framework that does not force actions, but rather provides a structure, and guidelines
in how to produce, and sustain a framework for rational investment decisions.
Conclusion
The purpose of this paper was to present and provide insight into how organizational
actors from the manufacturing and investment sector, engage and relate to rationality
in their investment processes. This was done by using a performative approach to
decision making, where the responding companies describe their investment activities
and how they work to reinforce a structure enhancing successful investment decision.
By including the perspective of and role asserted by external consultants in their effort
to engineer rationality for their clients, provided this paper with a unique level of
unbiasedness and added another dimension in our understandings of how companies
in both sectors work and relate to rationality in their investment activities.
Globalization is one of the major forces driving rapid market changes for companies
where technology and digitalization revolutionize industries and force companies to
adopt new business praxis. The results present some evidence in that it is becoming
more difficult for companies to discount the future benefits and success-rate of
investments. As a result, a paradox appears when investment activities both requires
more extensive information gathering and analysis, as well as a shorter time-frame in
the investment process in order to stay competitive. This in turn, increases the
complexity, and challenges the usage of and compatibility of previous successful
models and techniques. Furthermore, methods traditionally used as basis for
investment decision-making are ignored by managers, when they are assumed to not
be able to handle the complexities of reality and therefore counteract current fixed
strategies. In that sense, traditionally used models can be too complicated, misleading
and are therefore sometimes ignored, or less able to predict market shifts. Thus,
potentially provide an incorrect forecast of the future, which in turn can lead to cases
where investment actors make misguided decisions based on outdated, yet successful
theories of the past. This points to the conclusion that theories have the power to
evaluate the current and the past, but fails as a supportive and explaining tool for
future investment cases
Therefore, it is vital to focus on the development of ‘up-to-date’ investment models,
capable of dealing with contextual differences, and shorter time-frames for the
investment process, as well as the ability to handle big data flows, e.g. by developing
advanced business-intelligence systems. Additionally, these systems have to be
intuitive and user-friendly, in order to have a practical impact. As a result, companies
gain the ability to collect, analyze and efficiently use big data-sets, and therefore able
to make more accurate investment decisions. Furthermore, assuming that
organizations follow a strict unagile investment structure, economic theories and
traditional models will continue to struggle to exert a performative effect on
investment praxis. In that sense, the investment process should be regarded as a
guiding praxis, rather than a fixed procedure, thus it needs to be adaptive to specific
cases and engineered by investment professionals and not solely structured according
to the theoretical assumptions that fails to explain the business reality. In that sense, a
project-oriented structure is more appropriate to enable the investment process to be
more agile and proactive. In turn, decision makers can decrease the time-frame of the
investment process by excluding unnecessary events and adjusting the investment
praxis to each specific investment case.

29. 28
Furthermore, the results show that the professional background and individual
competencies are highlighted as major contributing factors for the investment process.
In that sense, the investment team should be composed deliberately out of individuals
with various industry backgrounds and skill-sets. A diversified team will enable firms
to handle complexities and perchance make more well-grounded investment decisions
in the long-run. Thus, in order to ensure rational decisions, the human due-diligence
processes should be regarded as a praxis contributing to the long-term yield of the
investment. Consequently, highlighted as a potential future successful praxis in the
quest to substitute traditional models in the pursuit of rationality in the investment
process. In fact, investment activities, according to the findings, tend to emphasize
more on the ‘investment team’, and the importance of the ‘individual actor’ connected
to the investment case, rather than build upon rationality in the traditional theoretical
sense. Finally, to support the performative effect of rational decision-making, external
consultants have an important role to fill, since they generally have extensive
information and practical knowledge from their previous working-relationships with
clients in all types of industries that are facing complex investment decisions. ‘The
Consultancy Toolbox’ needs to include additional attributes that can be adaptable for
the explicit context if it is to be successful in its usage and have a performative effect.
In that sense, the consultant could be seen as the ideal actor in spearheading the
development, education and integration of these systems and models, as well as
supporting in the implementation process.
To conclude, the gap between economic theory and practice, when it comes to
investment decision-making, remains ambiguous, and the results of this paper could
indicate a decline in the importance and usability of economic theories and models for
investment activities. Instead the results points to the importance of the individual
actor working with investments, which is reflecting the origin of this study - The fall
of theories and the rise of heroes.
Future Research
As discussed, the relationship between actors, theory and tools, and more specifically
the investment process at the studied companies, highlights how rationality is made
sense of and how organizations work to produce rational decision-making as a praxis,
thus aids in answering our research question. However, these findings cannot fully
explain the gap between theory and investment praxis. In order to substantiate the
level of relevance of the results, additional research in other industries, contextual
settings and factors related to investments are needed in order to fully grasp how
theory and practice interrelate in the search of rationality in decision making. By
doing this, researchers can further study investment practices and investigate if
theoretical assumptions are in fact declining in importance on a broader scale and
across different industries. Consequently, the study may contribute to a broader
discussion on how and why economic theories, especially normative decision theory,
becomes less important and might lose in practical relevance for the entire field of
decision making. Moreover, due to the increasing relevance of the individual actor
and the team composition, further research is needed on the human due-diligence
process, as well as how to structure investment teams efficiently. Finally, this paper,
inspire a further discussion on how rationality can be efficiently and accurately
produced in the investment process for organizations operating on a globalized
market.